US Dollar Monthly Exchange Rates Forecast - March 2025

The US tariff threats are fueling chaos in global markets, injecting volatility and uncertainty at every turn. While skeptics question whether Trump is just posturing, his policies are set to hit hard, with tariffs looming on the horizon. His aggressive economic playbook—slashing government jobs, slapping tariffs on imports, cozying up to Russia, and clashing with European leaders—risks gutting market confidence, stalling growth, and dragging down the dollar. Meanwhile, a wave of weak economic data is setting off alarm bells about the US outlook. The president’s erratic leadership, headline-chasing unpredictability, and policy whiplash are creating a storm of doubt, driving up borrowing costs, and putting the dollar’s dominance on shaky ground. While no one knows exactly where this is headed, one thing is clear: uncertainty is creeping in, and it's starting to test the foundation of America’s economic power.

The abrupt shift in US trade policy under the new administration has delivered a significant shock to Canada, with growth prospects dimming amid mounting economic pressure. The US is ramping up its stance on multiple fronts, with escalating tariff threats adding to the uncertainty. Trump’s push for reciprocal tariffs on key Canadian exports like dairy and lumber has intensified fears of further trade restrictions in the coming weeks. Alongside Mexico and China, Canada has found itself at the forefront of a growing trade conflict, retaliating swiftly with a 25% tariff on approximately USD 30 billion of US exports—potentially igniting a full-scale trade war. The volatility was evident in the markets, with a CAD flash crash on February 3 momentarily shaking investor confidence before USD/CAD settled below 1.45. However, risks for the Canadian dollar persist, driven by looming US tariffs, the potential for lower oil prices, and heightened political uncertainty as the Canadian election approaches.

The euro’s recent surge, its strongest since 1990, pushed it near $1.09 and sparked speculation about its next move. While downside risks to EUR/USD have eased, they remain present. Market reactions to US tariff threats and geopolitical shifts—such as the US aligning with Russia at the United Nations—continue to influence European interest rates and exchange rates. The euro, often seen as the dollar’s counterpart, has strengthened on expectations of looser fiscal policy, particularly in Germany. However, uncertainty over US policy remains a key risk. As the year progresses, cyclical factors are expected to take precedence, with a slowing US economy and a stabilizing eurozone potentially supporting a gradual recovery in EUR/USD.

Sterling continued its recovery from the $1.21 level in mid-January, reaching nearly $1.295, its highest level in two months. A rate cut by the Bank of England at its March 20 meeting appears unlikely due to accelerating wage growth and persistently firm core and services inflation. GBP has gained support from slightly higher interest rates relative to the eurozone and a reduced risk of significant US import tariffs on the UK. However, broader economic uncertainties pose a downside risk, and sterling may face a pullback in the coming weeks as economic headwinds dampen sentiment.

The yen was the second-best performing G10 currency in February and remains the top performer year-to-date, benefiting from broader dollar weakness driven by signs of a US economic slowdown and a more measured approach to trade tariffs. The yen’s strength likely reflects a shift in market positioning, as speculative traders had previously been short JPY in anticipation of Trump’s economic policies. While JPY dynamics are turning more bullish, Trump’s tariff actions typically support the dollar and could push USD/JPY higher. However, a key risk for JPY lies in Trump’s stance on currency misalignment, which he has previously cited as a reason for tariffs. If Washington raises concerns over excessive JPY weakness—especially with USD/JPY still over 45% higher than when Trump left office—it could drive yen appreciation even in a broader USD-strength environment.

The Chinese Yuan (CNY) faces two major challenges: heightened tariff risks tied to Trump and disappointment over the stimulus package. While the market has factored in some of the tariff risk, uncertainty remains. In Asia, the narrative is shifting from broad USD strength driven by US exceptionalism to a more focused impact of tariffs, with CNY likely to be the most affected currency in the region. The fiscal stimulus package fell short of expectations, lacking key measures like consumption support and bank recapitalization. As a result, Chinese exporters are unlikely to aggressively sell US dollars in the near term, keeping CNY under pressure.

The Indian rupee remains under pressure, with rising volatility as the Reserve Bank of India (RBI) intervenes selectively while focusing on growth. India faces heightened risks from Trump’s reciprocal tariff plans, which could increase US tariffs on Indian exports from around 3% to over 15%, exacerbated by India’s non-tariff barriers. However, strong ties between Trump and Modi suggest negotiations are likely. India’s recent tariff cuts aim to foster goodwill as both nations work toward a trade deal by Q3. Domestically, stronger-than-expected growth, RBI rate cuts, liquidity injections, and relaxed macroprudential measures could aid recovery and attract portfolio inflows despite ongoing global risks.

The Australian dollar gained after President Trump delayed a 25% tariff on Canada and Mexico, easing trade tensions. However, further gains may be limited as looming tariff threats could increase trade restrictions. Trump's plans for a 25% tariff on steel and aluminum, along with tariffs on semiconductor chips, pharmaceuticals, and a global reciprocal tariff framework, make a full suspension unlikely, raising the risk of G10 currency depreciation against the dollar. In Australia, the RBA cut its policy rate by 25bps as expected but signaled caution on further cuts, offering some support to the AUD. With two additional RBA rate cuts priced in for 2025, AUD recovery could materialize in the second half of the year if trade tariffs remain controlled, the US economy slows, and the Fed resumes monetary easing.

New Zealand’s manufacturing sector showed a strong start to the year, rebounding after nearly two years of decline as the PMI rose above 50. However, domestic pressures continue to weigh on the NZD, with the RBNZ cutting rates by 50bps and signaling the potential for further easing. The prospect of additional cuts keeps the NZD vulnerable in the near term, though a weaker US economy and anticipated Fed rate cuts in the second half of 2025 could provide some support for a rebound. If US growth slows sooner than expected, the weakness in the NZD may be less pronounced in the short term.

The US has granted Mexico another reprieve from tariffs, with President Trump citing the USMCA, but these exemptions are set to expire on April 2. Despite this temporary relief, US tariffs remain a significant challenge for Mexico’s economy, which contracted in Q4 2024. Mexico’s development model has long relied on continental integration, driven primarily by US multinational corporations, but the economy has also struggled under the pressure of high interest rates. While inflation is back within target—though slightly firmer in February—the central bank has room to continue cutting rates to support growth. However, downside risks for the Mexican peso (MXN) persist, as ongoing tariff threats remain a key source of uncertainty.